Deduction u/s 54F is eligible in case on payment for residential house made till due date of belated return filing

Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price. The sale of capital assets may lead to capital gains and these gains may attract tax under the Income Tax Act. To save tax on these capital gains, a few capital gains exemption/deductions are available under sections 54, 54B, 54D, 54F etc.

What is section 54F of the Income Tax Act?

Section 54Fprovides exemption towards long term capital gain (other than a residential house) when the amount is invested in purchasing or constructing a new residential house property.

The assessee needs to satisfy the following conditions in order to avail exemption under section 54F:

An exemption under section 54F is available only to an individual or a HUF.
An exemption is available towards the capital gain arisen on the transfer of any long-term capital asset other than a residential house.
The ‘net consideration’ arisen on the transfer of long-term capital asset is invested in either of the following manners –
The amount is invested to purchase one residential house in India. It is compulsory that such investment is made within 1 year before or 2 years after the date of transfer; or
The amount is invested, within 3 years, to construct one residential house in India.

Fact and Issue of the case

The assessee was engaged in teaching profession. For the year under consideration, the assessee filed return of income on 08/08/2013 declaring income of Rs.2,70,520/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. The assessment was completed on 23/03/2015, under section 143(3) of the Act at total income of Rs.71,29,500/-. Aggrieved, the assessee filed appeal before the Ld. CIT(A) and filed certain additional evidences. The Ld. CIT(A) called for a remand report from the Assessing Officer and after considering the rejoinder of the assessee, dismissed the appeal. Aggrieved, assessee is in appeal before the Tribunal raising the grounds as reproduced above. the assessee has challenged the action of the Assessing Officer of disallowing claim of the assessee under section 54F of the Act. In ground No. 2, the assessee is aggrieved with not considering the sum paid for purchase of the new asset before the due date of the filing of return of income despite allowability of which was accepted by the Assessing Officer in the remand proceeding. In ground No. 3, the assessee is aggrieved by further deduction under section 54F in respect of the payment made for purchase of the flat beyond the due date of the filing of the return of income i.e. 31/03/2012. The grounds of the assessee are connected with single issue of deduction under section 54F of the Act and, thus all the grounds are adjudicated in consolidated manner.

The brief facts qua the issue in dispute are that the Assessing Officer noticed sale of plot of land located at Gurgaon, (which was held jointly with her husband) for a total sale consideration of Rs.1,95,00,000/. After indexation of the cost of the acquisition, the capital gain was computed at Rs.1,77,19,468/- and the share of the assessee of the capital gain was worked out to Rs.88,59,734/-. During the year, the assessee invested a portion of the sale consideration on sale of plot of land (original asset) for purchase of a residential house at Noida (new asset). The assessee claimed deduction under section 54F of the Act amounting to Rs.90,02,000/- against the capital gain and thus net capital gain declared was nil. In the case of the assessee being individual the due date of filing of return of income under section 139 (1) of the Act was 31/07/2012 and till that date the assessee made payment for purchase of new asset amounting to Rs.36,87,458/-. The Assessing Officer examined the quantum of deduction allowable under section 54F of the Act and held that the amount of Rs.36,87,458/- only was eligible for deduction under section 54F of the Act.

Observation of the tribunal

The court has heard the rival submission of the parties and perused the relevant material on record, including the paper book filed by the assessee. The issue in dispute before us is in respect of the quantum of deduction allowable under section 54F of the Act. Under the provisions of section 54F, if capital gain arises on transfer of long-term capital asset other than residential house (original asset) to an eligible assessee and the consideration received on sale of original asset is invested in purchase or construction of residential house (new asset) within the period specified, the assessee is entitled for deduction under section 54F of the Act in proportion of the investment made in new asset as compared to the sale consideration received on sale of the original asset. Further, section 54F(4) has prescribed that the amount of net consideration received on sale of the original asset, – which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place; or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing his return of income u/s 139, such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under subsection (1) of section 139] in an account in any such bank or institution as may be specified by the Central government. Thus, the requirement of law is that for eligibility of deduction under section 54F of the Act investment in purchase of the new asset must be made within one year of transfer of the original asset and if the assessee is unable to invest in purchase of the new asset before filing of return of income, the amount shall be deposited in banks in specified capital gains scheme account, before due date of the filing in terms of section 139(1) of the Act.

In the instant case, the dispute is regarding the amount of payment made for purchase of the residential flat (new asset) before the due date of the filing of return of income. The contention of the assessee is that the due date of the filing of the return of income should be reckoned as under section 139(4) of the Act, whereas according to the Revenue, the due date of the filing of the return of income should be as per section 139(1) of the Act. In the case of the assessee, due date of the filing of return of income in terms of section 139(1) of the Act is 31/07/2012 and due date for filing return of income in terms of section 139(4) of the Act is 31/03/2014 (i.e. one year from the end of relevant assessment year or completion of assessment, whichever is earlier). As far as payment of Rs. 50,36,422/- made for purchase of new asset before 31/07/2012 is concerned, the Ld. Assessing Officer has also accepted in remand proceeding allowability of the sum of Rs.50,36,422/- and thus, we hold that this amount is undisputedly allowable for considering deduction under section 54F of the Act.

Regarding the payment made by the assessee before 31/03/2014, Hon’ble High Court of Rajasthan in the case of Shankar Lal Saini (supra) held that, where assessee, an individual deposited unutilized sale consideration in capital gains scheme within the due date of filing of belated tax return under section 139(4), the capital gains relief under section 54F of the Act would be allowable. In the case of K. Ramachandra Rao (supra), the Hon’ble Karnataka High Court held that assessee having invested entire sale consideration in construction of residential house within three years from the date of the transfer, he could not be denied exemption under section 54F on the ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1) of the Act.

In the case of Kishore H Galaya (supra), the coordinate bench has held that the date of filing return of income under section 139(1) for the purpose of utilization of the amount for purchase/construction of residential house has to be construed with respect to the due date prescribed for filing return of income under section 139(4) of Act. The payment made by the assessee towards purchase of residential house up to the due date of filing of the return of income prescribed under section 139(4) of the Act i.e. 31/03/2014 is allowable for considering deduction under section 54F of the Act. Respectfully, following the above decisions, we accordingly direct the Assessing Officer to consider amount utilized by the assessee for purchase of the house till 31/03/2014(which includes the payment of Rs.50,36,422/- made up to 31/07/2012) for deduction under section 54F of the Act.